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Title:Do exporting firms pay higher wages? Evidence from Kenya's manufacturing sector
Authors:Were, MaureenISNI
Kayizzi-Mugerwa, SteveISNI
Periodical:African Development Review (ISSN 1467-8268)
Geographic term:Kenya
Subjects:export oriented industries
External link:https://onlinelibrary.wiley.com/doi/10.1111/j.1467-8268.2009.00217.x/pdf
Abstract:When trade liberalization was first embarked on in Kenya some 20 years ago, a key argument against it was that it would reduce domestic wages, as exporting firms sought to remain competitive versus, for example, the low-cost Asian countries. A counter argument was that manufactured exports require more elaborate design, supervision, packaging and handling, and thus a more educated labour force than production for the domestic market. To attract such skills, exporting firms would need to pay higher wages than non-exporting ones. This paper uses data from Kenyan manufacturing to study the impact of trade liberalization on earnings, distinguishing between exporting and non-exporting firms. In particular, it investigates whether exporting firms paid a wage-premium to their employees. The study uses manufacturing firm survey data from a World Bank regional project. The study has three important findings: (1) There was a large and significant effect of exporting on wages in the first decade of trade liberalization. During the first half of the 1990s, workers in exporting firms earned up to 30 percent more than those engaged in non-exporting firms. The results are robust even after controlling for individual and firm-level characteristics such as employee demographics, productivity, firm location and occupation. (2) After a decade of trade liberalization, exporting ceased to be a significant determinant of wages in Kenyan manufacturing, after controlling for productivity and firm location. (3) During the 2000s, casual or irregular employment became a more common feature of exporting firms. The results suggest that while higher wages were important in attracting skilled labour to exporting firms at the beginning of trade liberalization in the 1990s, domestic competition has since reduced the wage premium. Cost cutting pressures are instead reflected in the substitution of casual and low wage labour for permanent and better educated labour and in increased automation. App., bibliogr., notes, ref., sum. [Journal abstract]